Disclosure Strategies Regarding Ethically Questionable Business Strategies

Disclosure strategies regardingethically questionable business

practicesIpek Aktar

Graduate Program of Economics, Finance, and Management (GPEFM),Universitat Pompeu Fabra, Barcelona, Spain

Abstract

Purpose – The author’s objective is to reveal the consumer responses to information disclosurestrategies regarding controversial ethical issues.

Design/methodology/approach – The author is interested in how voluntary disclosure ofquestionable business practices by chocolate manufacturers regarding child labor exploitation atcocoa plantations influences consumer behavior. A total of 120 students participated in anexperimental study in which the author manipulated awareness of ethical issues in the chocolateindustry and corporate disclosure strategy. The author measured willingness to pay (WTP) andconsumer perceptions about the firm’s commitment to corporate social responsibility.

Findings – The study found that voluntary disclosure of unethical business practices by a firm wasnot damaging in terms of consumer perceptions. When public awareness was limited, disclosingparticipation in unethical behavior did not influence WTP for the firm’s products. When publicawareness was high, disclosing this negative information is even more beneficial than no disclosureand generates similar responses to including only positive elements in the firm’s communication,provided that the firm commits to eliminate its unethical practices.

Research limitations/implications – Voluntary negative social disclosure will not hurt a firm’sperformance in terms of sales, given the disclosure is transparent and this suggests a crediblecommitment to improve its practices regarding the issue.

Originality/value – The author investigates the optimal strategy for a firm to disclose ethicalinfractions. She demonstrates that being open about them does not necessarily damage a firm’sreputation and suggests under which conditions this is the case.

Keywords Willingness to pay, Ethical consumerism, Negative corporate social disclosure,Transparency, Food and agricultural ethical issues, Public awareness, Consumerism, Disclosure,Social responsibility

Paper type Research paper

1. IntroductionAny company confronted with ethical issues faces a dilemma regarding the choice ofbeing open about them or remaining quiet. The question of how transparent andtruthful corporate communication should be becomes more difficult if they have beeninvolved in unethical business practices. After all, the purpose of corporate socialcommunication is to manage public response. While extensive research has examinedthe effect of a company’s positive social practices on stakeholders, less attention hasbeen paid to the impact of corporate disclosures of ethical infractions. In this paper weinvestigate whether a firm necessarily incurs economic damage from the disclosure of

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For their invaluable contributions, the author owes her special thanks to Marc Le Menestrel,Michael Bashshur and Gert Cornelissen who enthusiastically have always supported her studies.

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British Food JournalVol. 115 No. 1, 2013pp. 162-189q Emerald Group Publishing Limited0007-070XDOI 10.1108/00070701311289939

ethical infractions. We suggest a number of conditions under which this is not the case.These findings could guide a firm’s decision to resolve such dilemmas and encouragethem to be more open about their questionable practices. For instance, should achocolate company admit that there are issues of child slavery at cocoa plantationsand, if it does so, is it harmful to admit the company is not able to guarantee slave-freechocolate?

These questions are relevant in the context of corporate social responsibility (CSR)communication, which increasingly takes a more prominent place in managerialthinking (Bhattacharya et al., 2008; Bronn and Vrioni, 2001; Gelb and Strawser, 2001;Greenfield, 2004; Hartman et al., 2007; Kolk, 2003; Maignan and Ralston, 2002;McWilliams et al., 2006; Morsing and Schultz, 2006; Pearce and Doh, 2005; Vogue,2005). As issues of environmental protection, sustainability, climate change, workingconditions, and labor rights in developing nations continue to gain more attentionaround the globe, many corporations have included and emphasized a CSR componentin their mission statement (Astous and Legendre, 2009; CAFOD, 1998; Elliott andFreeman, 2005; Marymount University Center for Ethical Concerns, 1999). In parallelwith the increasing investments in CSR communication, the idea that companies have aresponsibility to have a positive impact on the social community in which they operatehas become a common expectation of stakeholders (Bhattacharya and Sen, 2004;Lichtenstein et al., 2004). Likewise, previous research has shown that consumersrespond favorably to corporations perceived to engage in socially responsibleactivities, expressed in increased consumer expenditures on goods and servicesidentified as being ethical (Billock, 2004; Co-operative Bank, 2006; Dawkins, 2004;National Statistics, 2006). However, the transition to ethical practices andcommunication is not without its problems (Du and Bhattacharya, 2010; Lindgreenet al., 2009; Lindgreen and Swaen, 2010; Maon et al., 2009). Most companies hesitate toengage in a more active public discourse about the ethical challenges they face.Understandably, they prefer to disclose favorable statements. On the other hand, recentresearch has suggested that companies could benefit by voluntarily disclosingnegative information regarding specific CSR issues in terms of consumer purchasepreferences in a comparative context in which consumer are given simultaneouslymore than one (Aktar and Le Menestrel, 2010).

The current study focuses on how consumer’s willingness to pay (WTP) might beaffected by the disclosure of negative CSR information and whether public awarenessregarding a particular ethical issue moderates the effect of negative informationdisclosure on the consumer’s WTP. Companies facing a potentially controversial CSRissue can respond in a number of ways. First, they can opt to avoid mentioning ordisclosing information connected to the matter at hand (no disclosure). Second, theycan acknowledge the existence of the issue and specify that they are not involved inany of those unethical activities arising from the issue (positive disclosure). Third, theymay acknowledge the issue, admit their role in it and commit to eradicate theproblematic practices (negative disclosure). Within the context of cocoa production inWest Africa and the surrounding ethical issues of child labor and slavery, we study theimpact of voluntary negative disclosure in terms of the consumer’s willingness to pay(WTP) for the product. Furthermore, we reveal whether public awareness of CSR

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issues moderates the relationship between voluntary negative social disclosure andWTP.

2. Literature review2.1. Ethical consumption and WTPWith steadily growing frequency, individuals identify themselves as ethical consumersand choose to support companies that care about ethical aspects in their productionand trading processes (Harrison et al., 2005; Strong, 1996). The literature defines ethicalconsumption as:

. the purchase of products that are produced and sold maintaining ethicalstandards and promoting issues such as environmental protection, humanrights, and animal rights;

. the boycott of companies that are involved in unethical practices;

. post-consumption behaviors such as recycling; and

. controlling excessive consumption (Auger et al., 2003; Cherrier, 2007; Doane,2001; Harrison et al., 2005; Jackson, 2006; Newholm and Shaw, 2007).

Revealing philanthropic and altruistic motives as the main drivers behind ethicalconsumption, the literature also shows that consumers may also choose to consumeethically to position themselves in an elite, distinct social class (Shaw and Newholm,2002).

The decision-making matrix for ethical consumption not only involves ethicalconsiderations, but also extends to consumer buying factors as price, product quality,taste, brand familiarity, convenience, cultural values and family values (Harrison et al.,2005). Hence, in ethical consumption, the ethical aspect associated with themanufacturing of the product is only one of the characteristics considered by theconsumer. Contingent upon specific factors, some consumers report that they alsowould be willing to pay a price premium for ethical products (Blend and VanRavenswaay, 1999; Loureiro and Lotade, 2005; Maietta, 2003; Trudel and Cotte, 2008).A survey reveals that about 46 percent of Europeans are willing to pay more for ethicalproducts (MORI, 2000). However, research still is inconclusive as to the amount ofpremium consumers, in general, would be willing to pay for products identified asethical. Price premium that consumers would be willing to pay for ethical products,reported in previous studies, range from 2 percent to 28 percent for different products(DePelsmacker et al., 2005; Devinney et al., 2006; Elliott and Freeman, 2005; Loureiroand Lotade, 2005). The lack of consensus indicates that various factors – includingspecific ethical issues involved, industry market, cultural contexts, and the pricecategory of the targeted product – all moderate the impact on consumer WTP.Additionally, some research suggests that ethical products might appear moreattractive if they are more expensive. For some, such product may be used as statussymbol to display their financial well being (Griskevicius et al., 2010). Given theincrease in ethical consumerism and price premium for ethical products, wehypothesize that, ceteris paribus, consumer WTP will be higher for products ofcompanies associated with positive corporate social disclosure relative to companies,which has no social disclosure.

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On the other hand, consumers might decide to punish irresponsible businesspractices by decreasing their WTP or avoiding purchasing the products of firmsinvolved in unethical practices (Trudel and Cotte, 2008). A number of studiesdemonstrate a negativity bias referring to the fact that consumers’ punishment tends tobe stronger than their rewarding behavior in terms of WTP (Dean, 2004; Henard, 2002;Trudel and Cotte, 2008). Consumers seem more receptive to information regardingirresponsible practices as negative information is considered more informative,diagnostic, unique, unexpected, and, hence, more memorable (Henard, 2002). One studyshowed that 67 percent of European and US consumers claim to have boycotted a food,drink or personal care product on ethical grounds (Datamonitor, 2005). Anotherindicated the publicized cases of fraud on food packaging – such as incorrect claimsregarding product origin, organic farming, or the product being free of geneticallymodified ingredients – would significantly decrease WTP (Ravilious, 2006). Despite ofthe evidence on consumer punishment to unethical practices, we hypothesize thatvoluntary disclosure of unethical practices by companies will not decrease consumerWTP if such a disclosure explicitly states its commitment to eliminate them and betransparent regarding the process. We believe that consumers will not perceive such adisclosure same as having simply irresponsible actions as acknowledgement of suchissue and commitment to solve them signals company’s sincere objective to be ethical.Results of a recent study, which analyzes the impact of voluntary negative socialdisclosure on consumer preference to buy, in the presence of a contrast effect, supportour hypothesis (Aktar and Le Menestrel, 2010). Contrast effect occurs when an object’sevaluation moves away from a point of reference as opposed to assimilation that occurswhen it moves towards a desired point of reference (Meyers-Levy and Sternthal, 1993;Sherif and Hovland, 1961). Applied to our context contrast effect suggests that,consumer evaluation of a firm who voluntarily discloses negative information wouldbe positively affected when the consumer can compare that message with anothermessage containing no social disclosure, because no disclosure is assumed to withholdinformation and not be transparent. Consumer evaluations of negative socialdisclosure will be negatively affected when the consumer compares it with a messagecontaining disclosure of only ethically responsible activities (Levin et al., 1996; Namand Sternthal, 2008). Yet, Aktar and Le Menestrel (2010) reveal consumers do notpunish companies that acknowledge their ethical infractions and act to solve themwhen evaluated in contrast to a company that states its is free of any ethical violation.Their findings further suggest that consumers whose awareness is raised by a thirdparty message on the relevant ethical issue may even reward companies who arecommitted to solve their unethical practices.

Other research streams have attempted to create a profile of the socially responsibleconsumers. These studies fail to reach to a consensus, however, regarding the typicalcharacteristics that ethical consumers share (DePelsmacker et al., 2005). Demographicsremain the most widely used basis of classification, yet their significance remainsdebatable as the literature provides contradictory findings on the predictive power ofgender, age, income and employment (Carrigan and Attalla, 2001; Cowe and Williams,2000; Dickson, 2000; Maignan and Ferrell, 2001; MORI, 2000; Roberts, 1996a; Sikulaand Costa, 1994; Tsalikis and Ortiz-Buonafina, 1990; Witkowski and Reddy, 2010).Two studies report that education is the only demographic variable that predicts


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consumer’s WTP for ethical products (Devinney et al., 2006; McGoldrick and Freestone,2008). In addition to demographic variables, other research in this direction finds thatindividual’s personal pro-social values, perceived consumer effectiveness, liberalism,idealism, social engagement behaviors, alienation and culture significantly impactethical consumption behavior (DePelsmacker et al., 2005; Dickson, 2000; Pepper et al.,2009; Robert, 1996a and 1996b; Witkowski and Reddy, 2010).

2.2 Corporate transparency and consumer awarenessIn addition to the studies on ethical consumption, another line of research related withour study is the corporate transparency literature (see, e.g. Hebb, 2006; Hess, 2007,2008). As disclosing negative information likely is counterintuitive for companies, CSRreports include primarily positive information (Brown and Deegan, 1998; Cho andPatten, 2007; Deegan and Rankin, 1996; Gozali et al., 2002). However, corporatetransparency should refer to information disclosure not only on positive activities butalso to information about a company’s ethical infractions.

In this context recent studies have explored the impact of corporate environmentaltransparency on consumer behavior. Two main streams of research concerning thisissue can be identified. The first argues that greater informational transparency wouldnot improve market performance, as consumers would use the information to putpressure on the companies to act and correct the infractions they may be involved in(see, e.g. Bansal and Kistruck, 2006; Hendry, 2006). On the other hand, several studiesreveal greater informational transparency would improve favorable consumerbehaviors as such transparency is considered a requirement for corporate socialaccountability, which, in turn, leads to consumer trust (Reynolds and Yuthas, 2008;Tapscott and Ticoll, 2003). Supporting this second line of argument, a recent empiricalstudy by Vaccaro and Echeverri (2010) concludes that informational transparencyimpacts consumer behavior positively as perceived company transparency predictsconsumer pro-environmental behavior. These findings support our hypothesis thatconsumers will not punish voluntary negative social disclosure given the company iscommitted to eliminate unethical practices, as consumers will value positivelycompany’s transparency regarding its ethical issues.

Another important issue, which emerges in the corporate transparency literature,concerns awareness. Joergens (2006) states that consumers cannot be sure whetherthey consume ethically because they lack information both regarding the product andthe result of their choices. Therefore, increasing consumer awareness becomes aprerequisite for increasing ethical consumption (Barnett et al., 2005; Lee and Shin, 2010;Wigley, 2008). However, Vaccaro and Echeverri (2010) reveal that consumer awarenesson environmental issues, even though it improves a consumer’s pro-environmentalbehavior, is negatively related with the perceived transparency of companies. Hence, inaddition to the studies discussing the positive impact of awareness on a consumer’spro-environmental behaviors (Christman and Taylor, 2002; Clark et al., 2003), Vaccaroand Echeverri (2010) suggest raising awareness on environmental issue is a difficulttask, which requires a medium-term to long-term investment, careful analysis ofconsumers’ expected level of information and which should be supported by thenational educational system (Roberts, 1996b). The most common ways to increaseconsumer awareness are print and visual media of which the latter has been found to

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be more effective in persuading the audience and changing their attitudes (McLuhan,1994, Nasser and McEven, 1976; O’Connell et al., 2004). In addition, the literaturehighlights the potential of information disclosure through information andcommunication technologies such as Internet-based interactive communicationchannels (e.g. blogs, social networks and company webpage) in achieving moreeffective communication (Vaccaro and Madsen, 2010). Given the proven role ofawareness to increase ethical consumerism, we hypothesize that consumers, whoseawareness on the relevant social issue is raised by a media report, will rewardcompanies that acknowledge their ethical infractions and eliminate them in terms oftheir WTP.

2.3 Child labor exploitation at cocoa plantationsAmong the most extensively documented ongoing ethical controversies is the use ofchild labor and slavery in the companies associated with cocoa production. Confirmedreports indicate there may be 280,000 children being forced to work in severeconditions, 200,000 of them in the Ivory Coast alone (International LabourOrganization: International Programme on Elimination of Child Labour (IPEC),2005). While some children in Third World countries voluntarily work, many areforced into labor at the risk of suffering physical punishment and psychological abuse(Dunaway, 2003, p. 135; Drachman and Shank, 2003, pp. 152-159). In the cocoaplantations, most of the child laborers are purchased from slave traffickers in aone-time bulk fee arrangement and are rarely, if ever, paid directly for their work.Provided only with basic amenities of food and shelter, plantation laborers usuallywork for twelve or more hours with little time for sufficient rest. While some are able toleave by the time they reach their mid-teen years, most child laborers have little or nooption of ending their indentured service for fear of being abandoned and deported outof the country to uncertain conditions for survival (Kielland and Tovo, 2006,pp. 154-156).

Human rights and labor groups from around the globe have consistently calledupon cocoa harvesting units and plantation owners to revise their labor practices andto employ adults at reasonable wages (Bass, 2004, pp. ii, 4; Off, 2007, p. 211).Abandoning the use of child labor would also mean stimulating employment as well asending the exploitative practices of slave trafficking (Elliott and Freeman, 2005).Despite a multitude of reports about the child labor problem at cocoa plantations, mostof the chocolate manufacturing conglomerates have ignored petitions calling for theplacement of a “slave-free” mark on product wrappers. Spokespeople for themanufacturers often have adopted the strategic tactic of not disclosing any informationor disclosing they had nothing to do with purchasing cocoa harvested and processedby means of forced labor. The Chocolate Manufacturers Association lobbiedsuccessfully to stop a proposed bill in the US Congress that would have forced thecompanies to put a “slave-free label” on their products, claiming that such legislationwould trigger a consumer boycott of all products from the Ivory Coast (Chatterjee,2001, pp. 21-23). One of the bill’s sponsors, US Representative Eliot L. Engel from NewYork, said legislation was needed as a corrective because while the chocolatemanufacturers had the power to guarantee an end to exploitative labor practices, yet


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they refused to do so because the practices, in effect, had strengthened their financialand market positions in an intensely competitive industry (Chatterjee, 2001, pp. 21-23).

In 2008, reports emerged that Cargill, a major conglomerate manufacturer of cocoaproducts that have a strong brand presence in the US, had been complicit in child labor(Parenti, 2008). Cargill responded by enacting a loan program for Ivory Coast farmers andworkers but there were reports that those individuals who could not satisfy theiroutstanding debts were either jailed or conscripted to cultivate cocoa on their farmland orforced to work at the company’s farms along with their families. The company denied theallegations in calling it a serious misinterpretation, the company’s spokespersonssuggested that farm owners had signed special contracts as per stated within Cargill’sCSR documents which had explicitly denounced the use of slavery in production (Parenti,2008).

More recently, for many chocolate manufacturers, the ethical dimensions ofenvironmental issues of “going green” and sustainability appear to have eclipsed thefocus on child slave labor in terms of CSR initiatives (Ethics World, 2009). Cadbury’s CSRgoals cite a “fair trade” brand-mark partnership, which permits the company to purchasemore cocoa directly from farmers to their economic benefit (Ethics World, 2009).Meanwhile, Nestle did not mention the slavery issue in a recent CSR report preferring toconcentrateonissuesinvolvingwaterconservationandobesity.Similarly,theCSRreportsof other chocolate manufacturers only mentioned “slavery” in limited text citations,indicating their preference to keep the issue off the public radar (Ethics World, 2009).

3. HypothesesEarlier research indicated that companies could benefit from voluntarily disclosingnegative information regarding their CSR issues in terms of consumer buying preference,if consumers could compare that information with statements from non-disclosing firms(AktarandLeMenestrel,2010).Asaresult, thecompanyis ideallypositioned forproactiveresponses in avoiding future ethical infractions and keeping consumers apprised of theethical issues involved in their industry. The current study investigates consumerresponses to a single CSR message. We evaluate the impact of negative social disclosurewhen the consumer does not have immediate access to other messages they can use asreferences. Specifically, we observe how disclosures regarding ethical practices influenceconsumer WTP.

Ifacompany thatvoluntarilydiscloses negativeCSRinformation is truly committed toeliminate the social problem and is transparent regarding how it will do so, either with theintent of resolving the problem and/or of minimizing the potential risk of negativepublicity that could arise from no or wrong disclosure, the following hypotheses areproposed:

H1. Consumer’s WTP will be higher for the companies with a positive CSR messagerelative to companies that don’t mention anything regarding the CSR issue.

H2. Consumer’s WTP will be equal for companies that voluntarily disclose negativeCSR information relative to companies with positive CSR disclosure.

H3. Public awareness of the relevant CSR issue moderates the effect of disclosurestrategy on consumers’ WTP. When awareness is high, we expect consumerresponses to negative disclosure to be relatively less negative.

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4. Methodology4.1 Participants and designA total of 120 undergraduate students anonymously participated in the study inexchange for money. Twenty participants were assigned to each experimentalcondition. The sample comprised of 75 female (62.5 percent) and 45 (37.5 percent) malestudents randomly selected from the student population at Universitat Pompeu Fabrain Barcelona, whose overall average monthly spending was 843.87 e (SD ¼ 200.81)with an average age of 20.79 (SD ¼ 2.06).

The experimental design included two between-subjects factor (see Table I). Wemanipulated public awareness (watching a video clip on child labor in the chocolateindustry versus no video) and communication strategy (no disclosure, positivedisclosure, and negative disclosure). The video that half of the participants viewed wasan 18-minute version of a daily television/radio news program as broadcasted at http://democracynow.org (Democracy Now, 2008). The edited version used for theexperiment involved actual clips from the organisation’s original video.

Regarding communication strategy, equal proportions of our partipicants wererandomly given one of the following three statements, supposedly published by a firmin the chocolate industry:

(1) A no disclosure statement in which there is no mention of child labor andslavery issues involved at cocoa production;

(2) Positive disclosure statement in which the issues of child labor and slavery areacknowledged but the company states explicity that its products are free andclear of such or

(3) A negative discosure statement in which issues of child labor and slavery areacknowledged and the company cannot guarantee that its products are freefrom those concerns, but it outlines plans to assure that its products are free ofall forms of exploitative labor.

4.2 ProcedureAt the beginning of the session, all participants, regardless of experimental condition,were asked to estimate the typical price of a 125 gram chocolate bar of their preference(i.e. milk or dark). This measure served as a baseline to control for individual’s priceestimates for a regular bar of chocolate. Participants subsequently answered questionsregarding their chocolate consumption habits. Then, participants assigned to the videoconditions (4, 5 and 6) watched the video. All participants, whether they watched thevideo or not, then were asked to read one of the relevant three CSR messages about afictional chocolate manufacturer company (X) (see Appendix 1 for completeinstructions, Figure A1).

No disclosure Positive disclosure Negative disclosure

No video Condition 1 Condition 2 Condition 3Video Condition 4 Condition 5 Condition 6

Table I.Experimental design


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Following the reading of the CSR message, participants were asked to assign the pricethey would be willing to pay for six chocolate products from this particular chocolatecompany. Subsequently, participants completed measures described below (seeAppendix 1 for complete instructions, Figure A1).

4.3 Measures. WTP. We asked each participant how much they would be willing to pay for a

125 gram chocolate bar of their preferred taste (i.e. milk or dark), produced by thefictional chocolate company.

. Perceived consumer effectiveness (PCE) scale. The PCE scale consisted of fouritems, measured on a seven-point Likert-Scale, ranging from 1 (stronglydisagree) to 7 (strongly agree) (adapted from Straughan and Roberts, 1999). Thescale (Cronbach’s alpha ¼ 0.78) measured individual perceptions of how muchimpact consumers can have, through their purchase decisions, to resolve theproblem of child labor exploitation.

. Control variables. To control for potential mood effects of our awarenessmanipulation, we included a five items scale to measure mood (Pham, 1998).Additionally, we measured participant’s prior awareness of (seven items) andattitude regarding child labor practices at cocoa production by three items thatboth we created on a Likert scale from 1 (strongly disagree) to 7 (strongly agree).We controlled for participant’s trust propensity by using three items fromRotter’s (1971) general trust scale. We also collected information about age,gender, and income level (see Appendix 2 (Table AI) for all scale reliabilities).

5. ResultsOutlier analysis of WTP responses suggested that the data of one participant should beexcluded, for being more than three standard deviations away from the mean.Excluding this participant did not change any of the results. Then we analyzed whichof our control variables responded to our experimental manipulations. We ran amultivariate ANOVA, with public awareness and disclosure type as independentvariables. Awareness did not have a main effect on perceived consumer effectiveness.We found a significant effect of disclosure type on attitude towards child laborexploitation (F(2,113) ¼ 3.17, p ¼ 0:046) and perceived consumer effectiveness(F(2,113) ¼ 4.91, p , 0:01). Participants in no-disclosure condition (M ¼ 5:65,SD ¼ 1:48) had a less negative attitude towards child labor than those in thepositive disclosure group (M ¼ 6.27, SD ¼ 0.90) and negative disclosure conditions(M ¼ 6:14, SD ¼ 1:02). Attitudes of participants who read negative and positivedisclosure did not differ. Regarding perceived consumer effectiveness, any kind ofvoluntary social disclosure, negative (M ¼ 5:46, SD ¼ 0:75) and positive (M ¼ 5:34,SD ¼ 0:88), led to higher perceived consumer effectiveness relative to no disclosure(M ¼ 4:89, SD ¼ 0:95). The public awareness manipulation had a significant effect onmood (F(1,113) ¼ 51.13, p , 0:01) and a marginally significant effect on attitudetoward child labor exploitation (F(1,113) ¼ 3.53, p ¼ 0:06). Those who watched thevideo (M ¼ 3:90, SD ¼ 0:99) reported a worse mood than those who did not(M ¼ 5:12, SD ¼ 0:85). In addition, those who watched the video had a less tolerantattitude towards child labor (M ¼ 6:22, SD ¼ 1:08) relative to those who did not watch

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the video (M ¼ 5.82, SD ¼ 1.25). The observed interaction of disclosure type andawareness did not affect control variables. Correlation analysis revealed thatparticipant’s prior awareness, trust propensity and mood were not significantlycorrelated with WTP, whereas attitude towards exploitation (r ¼ 0:21, p , 0:03),perceived consumer effectiveness (r ¼ 0:243, p , 0:01) and estimated typical price of achocolate bar (r ¼ 0:558, p , 0:01) were. Then, we evaluated which of those variablesexplained WTP by an ANOVA analysis. We found that participant’s prior awareness,trust propensity and attitude towards child labor exploitation were not significantpredictors of WTP, whereas perceived consumer effectiveness (F(1,107) ¼ 16.59,p , 0:01) and estimated typical price of a chocolate bar (F(1,107) ¼ 81.25, p , 0:01)and mood (F(1,107) ¼ 4.28, p ¼ 0:04) were. Those variables that were significantlyrelated with WTP and affected by our manipulations were included in the analysis ascovariates.

An ANCOVA was generated to determine the effect of disclosure type andawareness of the ethical issue on WTP, controlling for estimated typical price, mood,perceived consumer effectiveness and attitude toward exploitation (see Appendix 3(Table AII) for parameter estimates). The overall ANCOVA was significant (F(9,109) ¼ 15.75, p , 0:01, partial h2 ¼ 0:565, power ¼ 1.00). The covariates estimatedtypical price (F(1, 109) ¼ 83.81, p , 0:01), mood (F(1, 109) ¼ 4.32, p ¼ 0:04) andperceived consumer effectiveness (F(1, 109) ¼ 16.78, p , 0:01) had a significant effectwhile attitude toward exploitation (F(1, 108) , 1) did not. WTP was higher forparticipants who had a higher estimated price of a regular 125 gr. chocolate bar and forthose who reported a higher level of PCE. Lower mood scores were related to higherlevels of WTP.

We found a main effect of disclosure type (F(2, 109) ¼ 9.06, p , 0:01), but not ofpublic awareness (F(1, 109) , 1). This main effect was qualified by a significantinteraction between disclosure type and public awareness (F(2, 109) ¼ 4.44, p , 0:02,see Figure 1). Based on these results, we confirm our H3, which states that awarenessmoderates the effect of disclosure of negative information on WTP. To probe theinteraction, we tested pair wise contrasts of the estimated cell means.

Figure 1.Estimated marginal

means of WTP bydisclosure and awareness


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Regarding participants whose awareness was not raised (i.e. those in the no videocondition), there was no effect of disclosure type on WTP, rejecting our H1 andaccepting our H2 (see Appendix 4 (Table AIII) for parameter estimates). Participant’sWTP in the no disclosure (M ¼ 2:31, SD ¼ 0:65), positive disclosure (M ¼ 2:41,SD ¼ 0:84) and negative disclosure conditions (M ¼ 2:41, SD ¼ 0:94) did not differsignificantly (F(2,52) , 1).

Regarding participants who did watch the video, however, WTP was higher if theyhad read a CSR statement including negative disclosure (M ¼ 2:72, SD ¼ 0:95) andpositive disclosure (M ¼ 2:50, SD ¼ 1:25) than in the case of reading a statement inwhich the firm did not disclose any information (M ¼ 1:59, SD ¼ 0:61,F(2,53) ¼ 10.39, p , 0:01). For viewers of the video, there was no differenceregardless of whether the disclosure statement was positive or negative (see Appendix5 (Table AIV) for parameter estimates).

For those participants who read a CSR message in which there was no disclosureregarding child labor, the WTP of those who were made aware (M ¼ 1:54, SD ¼ 0:61)of the existence of child labor was lower than for those who were not (M ¼ 1:94,SD ¼ 0:65, F(1,34) ¼ 4.76, p , 0:04) (see Appendix 6 (Table AV) for parameterestimates). For those participants who read a CSR message in which the firm states it isfree of any involvement with child labor exploitation (i.e. positive disclosure), WTP didnot differ significantly (F(1,33) ¼ 1.11, p ¼ 0:30) for participants who watched thevideo (M ¼ 2:76, SD ¼ 1:25) relative to participants who did not (M ¼ 2:38,SD ¼ 0:84) (see Appendix 7 (Table AVI) for parameter estimates). Likewise, for thoseparticipants who read a CSR message in which the firm did disclose but could notguarantee that its products were free of child labor exploitation (i.e. negativedisclosure), awareness does not have an effect (F(1,34) , 1) on WTP (video viewersM ¼ 2:69, SD ¼ 0:95 vs not video viewers M ¼ 2:64, SD ¼ 0:94) (see Appendix 8(Table AVII) for parameter estimates).

DiscussionWe tested how communication affects consumer’s responses for firms, which are activein an industry struggling with an ethical issue. The results of our study suggest that ifpublic awareness regarding the certain ethical issue is limited, neither positive nornegative voluntary disclosure of social issues has a substantial effect on consumer’sWTP. Therefore, if a manager’s sole objective is to improve consumer’s WTP, it doesnot matter whether the firm discloses her practices regarding these ethical issues. Inparticular, it is very important that negative disclosure does not a cause a decrease inWTP. This is an interesting finding, considering the fact that consumers’ WTP shouldnot be the sole objective of corporate communication. Transparency and makinginformation freely available should be additional motivators to disclose ethicalinfractions as part of social responsibility. These results confirm that firms should nothesitate to disclose publicly their ethical dilemmas or predicaments, given they aretruly committed to eliminating them when the public awareness is low (Aktar and LeMenestrel, 2010). Additionally, both positive and negative disclosure results in higherlevels of PCE, which is one of the main determinants of ethical consumer behavior(Roberts, 1996b). Although these effects do not directly translate into a larger WTP,

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they are likely to improve consumer loyalty, brand image and other desirablelong-term effects.

When awareness is high, results indicate that both positive and negative voluntarysocial disclosure, lead to higher WTP than no disclosure. In this case, disclosing firmsare better off, as consumers seem willing to punish those companies that do notdisclose any information. Hence companies should disclose their ethical infractionswhen there is public awareness on the relevant social issue.

Another important result is the predictive power of PCE on WTP. This emphasizesthe relevance of a consumer empowerment component in campaigning on social issues.If consumers believe that each euro they spend makes a difference, they are more likelyto incorporate considerations of an ethical dimension into their consumption decisions.

The findings contribute to the growing body of literature on ethical consumerism bydemonstrating that transparency on ethical infractions might benefit firm performancein a specific context (i.e. high awareness, no contrast), where consumers would bewiling to pay more for the products of transparent companies with a genuinelyaccountable commitment to eliminate their problems regardless of the prospect ofdisclosing negative information (i.e. they can or cannot ensure their products andoperations included unethical practices). This complements previous findings that fora communication strategy regarding unethical practices to be successful, it shouldinclude a commitment to eliminate ethical infractions, when they are identified (Aktarand Le Menestrel, 2010). Awareness strengthens consumer perceptions and attentionto ethical consumption according to their response in the marketplace to the differentways in which information is disclosed. The findings partially support existingconsumer behavior literature that suggests that awareness will increase ethicalconsumerism. More specifically, with regard to labor exploitation at the cocoaplantations, the findings suggest at least tangentially that a broad, deep awareness ofthe ethical issues involved would not lead necessarily to a total consumer boycott ofgoods as professional industry lobbyists might otherwise have warned. Apparently,companies hesitate to take the risk of disclosing negative information, preferringinstead to underestimate the consumer’s capacity for appreciating meaningfully andpositively a company that voluntarily discloses its involvement in a controversialethical problem. In addition, consumers might give companies the redemptive benefitof the doubt in terms of corrective action. Unfortunately, the existing literature andperiodic media reports suggest that, at least, many multinational chocolate companiesprefer strategies that ultimately distract the public rather than directly address theproblem. And, as in an earlier study (Aktar and Le Menestrel, 2010) regarding theimpact of competing CSR messages from two companies with different disclosurestrategies, our findings suggest also without a contrast effect, companies shouldn’thesitate to be transparent regarding their social problems.

7. LimitationsThe current study was limited to self-reported WTP, Therefore, the translation of theresults into an accurate account of how actual buying behavior would be affectedremains a further research question. In addition, only one aspect of thedecision-making process in consumer buying behavior was examined rather thanthe much broader approach that includes many relevant factors targeting a consumer’s


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preference for product. One also must acknowledge that ethical consumption involvesmore costs than offered in the experimental conditions of the study, especially thoserelating to the search for information about corporate social responsibility and ethicalproducts. Finally, the results are based on experiments conducted on undergraduatestudents. We constructed our design so that both control and treatment groups aredrawn from the same population and we looked at treatment effects. Althoughchocolate is a common good consumed by students and we would expect a similarattitude toward it from different social groups, replication of this analysis withdifferent consumer groups would be needed to show the robustness of our findings.

8. Future researchFuture studies might reveal the step-by-step process of how disclosure type andawareness translate into consumers’ WTP. Also, our study incorporated just a singlemedia platform for increasing awareness. Future studies, taking in account the natureand credibility of the information source, might, for example, look at the effect ofnegative disclosure when the company in question is the primary source for theawareness-building campaign and when it is compared to external trusted sources ofinformation. Additionally, communication channel can also be manipulated. Consumersoften do not seek CSR information but they are exposed to it through channels such aseditorial coverage on television and in the press, stakeholder word-of-mouth or corporatecommunication channels, including high profile cause-oriented marketing campaigns,advertising or point of purchase communications. Such communication channels mightaffect the responses to a negative disclosure in a different way than a corporate website.The current study also could be replicated with other social problems about which thepublic’s prior awareness of the social issue is already high and the focus would be onwhich manner and type of disclosure strategy would trigger the most significantchanges in consumer WTP. Another possibility is to examine the effect of negativeinformation’s long-term effects on perceived sincerity, trust, attitude towards companiesand consumer loyalty. Finally, as discussed in the previous section, the robustness if ourfindings could be tested in a further study where consumers make their choices in anaturally occurring setting.

9. ConclusionWhat should corporate managers do when faced with an ethical problem? Given theintensity of market conditions in many industries, when companies face an ethical issue,the obvious default action appears to cover it up, even if the company is doing efforts toresolve the issue through less visible channels. Instinctively, many managers fearrisking negative reactions from the media and, in turn, consumers and the generalpublic. However, this protocol of managerial attitude and response compromises thepromotion of sustainable business and ethical consumerism as it underestimates theimportance of those ethical problems, decreases the efficacy of a proposed solution andfalsely soothes companies pretending that they do not have a problem. Contrary to theconventional belief that consumers would not buy a product because of any negativeinformation, managers and stakeholders such as consumers must be able to see beyondthe negative information itself especially where consumers are increasingly becomingfamiliar with the inevitable dynamics of living in a global marketplace. Once consumers

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become aware of negative information associated with a company’s connection to acontroversial ethical problem or issue, it becomes economically, managerially, andsocially unfeasible to pretend that a problem does not exist. For managers andexecutives, the strategy represents unforeseen costs that could have been avoided hadthe company taken the opportunity to acknowledge the problem and make consumersaware of any corrective actions. When there is awareness, consumers likely will rewardthe companies that publicly disclose, regardless of the positive or negative nature of theinformation being shared. In other words, voluntary negative social disclosure likelywill not damage a company’s position, given it acts definitively to resolve the issue and istransparent in the process. The response of other stakeholders is as critical, includingother companies in the industry identified as ethically responsible, nonprofit agencies,government, and others directly and indirectly connected to the company and industryin question. In the longer term, consumers also will be lulled out of their traditionalcomfort zones and will be challenged to think more comprehensively about theindividual and collective impact of consumer behavior and the growing importance ofethical consumerism in many industries, most notably food and agriculture in whichpublic debates seem to be multiplying in exponential form.

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Anderson, R.C. and Hansen, E.N. (2004), “Determining consumer preferences for eco-labelledforest products”, Journal of Forestry, Vol. 102 No. 4, pp. 28-32.

Auger, P. and Devinney, T.M. (2007), “Do what consumers say matter? The misalignment ofpreferences with unconstrained ethical intentions”, Journal of Business Ethics, Vol. 76 No. 4,pp. 361-83.

Bjorner, T.B., Hansen, L.G. and Russell, C.S. (2004), “Environmental labelling and consumers’choice. An empirical analysis of the effect of the Nordic Swan”, Journal of EnvironmentalEconomics and Management, Vol. 47 No. 3, pp. 411-24.

Boulstridge, E. and Carrigan, M. (2000), “Do consumers really care about corporateresponsibility?”, Journal of Communication Management, Vol. 4 No. 4, pp. 355-68.

Carrington, M.J., Neville, B.A. and Whitwell, G.J. (2010), “Why ethical consumers don’t walk theirtalk: towards a framework for understanding the gap between the ethical purchaseintentions and actual buying behaviour of ethically minded consumers”, Journal ofBusiness Ethics, published online, 6 May.

Crane, A. (2001), “Unpacking the ethical product”, Journal of Business Ethics, Vol. 30 No. 4,pp. 361-73.

Eckhardt, G., Devinney, T. and Belk, R. (2006), Why Don’t Consumers Behave Ethically, DVD,AGSM.

Kollmus, A. and Agyeman, J. (2002), “Mind the gap: why do people act environmentally and whatare the barriers to pro-environmental behavior?”, Environmental Education Research,Vol. 8 No. 3, pp. 239-60.

MacGillivray, A. (2000), The Fair Share: The Growing Market Share of Green and EthicalProducts, New Economics Foundation, London.

Morrell, L. (2005), “The ethical premium”, Retail Week, published online, 4 February.

National Consumer Council (1996), Green Claims: A Consumer Investigation Into MarketingClaims About The Environment, NCC, London.

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Appendix 1

Figure A1.Instructions


181

Figure A1.

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Figure A1.


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Figure A1.

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Appendix 2

Figure A1.

Scales Cronbach’s alpha Number of items

Attitude towards child labor exploitation 0.649 3Mood 0.916 5Perceived consumer effectiveness 0.782 4Prior Information on the CSR issue 0.828 7Trust Propensity 0.729 3

Table AI.Scale reliabilities


185

Appendix 3

95% confidenceinterval

Parameter BStd.error t Sig.

Lowerbound

Upperbound

Partial etasquared

Intercept 20.269 0.628 20.428 0.669 21.514 0.976 0.002typicalprice 0.928 0.101 9.155 0.000 0.727 1.129 0.435mood 20.143 0.069 22.078 0.040 20.279 20.007 0.038Consumer effectiveness 0.313 0.076 4.096 0.000 0.161 0.464 0.133Attitude exploitation 20.002 0.056 20.038 0.970 20.114 0.109 0.000[disclosure ¼ 1.00] 0.148 0.234 0.632 0.529 20.316 0.613 0.004[disclosure ¼ 2.00] 0.193 0.233 0.829 0.409 20.268 0.654 0.006[disclosure ¼ 3.00] 0b – – – – – –[video ¼ 0.00] 20.617 0.238 22.590 0.011 21.089 20.145 0.058[video ¼ 1.00] 0b – – – – – –[disclosure ¼ 1.00] *

[video ¼ 0.00] 0.758 0.318 2.386 0.019 0.129 1.388 0.050[disclosure ¼ 1.00] *

[video ¼ 1.00] 0b – – – – – –[disclosure ¼ 2.00] *

[video ¼ .00] 0.896 0.320 2.801 0.006 0.262 1.530 0.067[disclosure ¼ 2.00] *

[video ¼ 1.00] 0b – – – – – –[disclosure ¼ 3.00] *

[video ¼ .00] 0b – – – – – –[disclosure ¼ 3.00] *

[video ¼ 1.00] 0b – – – – – –

Notes: a. Computed using alpha ¼ 0.05; bThe parameter is set to zero because it is redundant;Disclosure: 1 positive disclosure/2 negative disclosure/3 no disclosure (reference group); Video: 0having watched the video/1 not watched the video (reference group); When awareness is not raised bya video, relative to no disclosure (reference group), positive disclosure (disclosure ¼ 1) and negativedisclosure (disclosure ¼ 2) respectively results in 0.148 e and 0.193 e higher WTP, which are both notsignificant; In order to comment on the effect of disclosure on WTP when participants see the video,we will conduct further analysis as the interaction variable is significant

Table AII.Parameter estimates ofANCOVA Analysis ofWTP as the dependentvariable with allparticipants

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Appendix 4

Appendix 5

95% confidence interval


Lowerbound

Upperbound

Partial etasquared

Intercept 0.320 0.724 0.441 0.661 21.133 1.772 0.004typicalprice 0.930 0.096 9.675 0.000 0.737 1.123 0.638Attitudeexploitation 20.014 0.066 20.215 0.830 20.146 0.118 0.001Consumereffectiveness 0.371 0.082 4.541 0.000 0.207 0.535 0.280Mood 20.293 0.081 23.615 0.001 20.456 20.131 0.198[disclosure ¼ 1.00] 0.103 0.197 0.524 0.602 20.292 0.498 0.005[disclosure ¼ 2.00] 0.097 0.195 0.501 0.619 20.293 0.488 0.005[disclosure ¼ 3.00] 0a – – – – – –

Notes: aThis parameter is set to zero because it is redundant; b. R squared 75.1 percent

Table AIII.Parameter estimates of

ANCOVA analysis ofWTP as the dependent

variable with participantswho did not watch the

video



Lowerbound

Upperbound

Partial etasquared

Intercept 21.137 0.940 21.209 0.232 23.022 0.748 0.027typicalprice 0.945 0.171 5.523 0.000 0.601 1.288 0.365Attitude_exploitation 0.017 0.088 0.191 0.849 20.160 0.194 0.001consumer_effectiveness 0.251 0.131 1.925 0.060 20.011 0.513 0.065Mood 20.034 0.107 20.318 0.752 20.248 0.180 0.002[disclosure ¼ 1.00] 0.912 0.256 3.567 0.001 0.399 1.426 0.194[disclosure ¼ 2.00] 1.128 0.264 4.278 0.000 0.599 1.657 0.257[disclosure ¼ 3.00] 0a – – – – – –

Notes: aThis parameter is set to zero because it is redundant; b. R-squared: 47.2 percent; whenparticipants watch the video, relative to no disclosure, positive disclosure results in 0.912 e higherWTP and negative disclosure with 1.128 e higher WTP

Table AIV.Parameter estimates of


variable with participantswho watched the video


187

Appendix 6

Appendix 7

95 % confidence interval


Lowerbound

Upperbound

Partial etasquared

Intercept 0.363 0.595 0.610 0.546 20.845 1.571 0.011typicalprice 0.870 0.125 6.958 0.000 0.616 1.124 0.587Attitudeexploitation 20.088 0.049 21.782 0.084 20.188 0.012 0.085Consumereffectiveness 0.164 0.076 2.159 0.038 0.010 0.319 0.121Mood 20.022 0.072 20.306 0.761 20.168 0.124 0.003[video ¼ 0.00] 20.393 0.180 22.183 0.036 20.758 20.027 0.123[video ¼ 1.00] 0a – – – – – –

Notes: aThis parameter is set to zero because it is redundant; b R-squared: 60.3 percent

Table AV.Parameter estimates ofANCOVA analysis ofWTP as the dependentvariable with participantswho read the nodisclosure statement



Lowerbound

Upperbound

Partial etasquared


Notes: aThis parameter is set to zero because it is redundant; b. R-squared: 49.1 percent

Table AVI.Parameter estimates ofANCOVA analysis ofWTP as the dependentvariable with participantswho read the positivedisclosure statement

BFJ115,1

188

Appendix 8

About the authorIpek Aktar recently obtained her PhD in Management at Universitat Pompeu Fabra focusing oncorporate social responsibility. She is interested in doing research on business ethics andcredibility of ethical companies. Ipek Aktar can be contacted at: [email protected]



Lowerbound

Upperbound

Partial etasquared


Notes: aThis parameter is set to zero because it is redundant; b. R-squared: 60.1 percent

Table AVII.Parameter estimates of


variable with participantswho read the negative

disclosure statement

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